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Financial condition and capital expenditures

Changes in the statement of cash flows

In the first three months of 2013 there was a net cash outflow of €160 million from operating activities, against a net inflow of €129 million in the prior-year period. With income before income taxes amounting to €31 million, the increase in net working capital compared to December 31, 2012 resulted in a cash outflow of €285 million. In the prior-year period, the income before income taxes was €247 million, and the cash outflow from the increase in net working capital was €244 million. The development of net working capital in the reporting period was mainly the result of an increase in inventories due to continued low demand and an increase in receivables due to higher sales in March 2013 versus December 2012.

There was a €144 million net cash inflow from investing activities in the first three months of 2013, compared with a net cash inflow of €9 million in the same period a year ago. Cash inflows in the reporting period mainly comprised receipts of €235 million from financial assets, which were largely attributable to the sale of near-cash assets. Cash outflows for purchases of intangible assets, property, plant and equipment totaled €93 million, which was €1 million more than in the prior-year period. Depreciation and amortization amounted to €102 million.

Net cash used in financing activities came to €19 million, compared with net cash of €17 million provided by financing activities in the first three months of 2012. Cash outflows in the amount of €30 million for the repayment of financial liabilities were offset by €19 million in proceeds from new borrowings.

Financing and liquidity

The principles and objectives of financial management discussed in the Annual Report 2012 remained valid during the first quarter of 2013. They are centered on a conservative financial policy built on long-term, secured financing.

Cash and cash equivalents decreased by €33 million compared with the end of 2012, to €353 million. The €176 million of instant-access investments in money market funds, down from €411 million at the end of 2012, was reported under near-cash assets. The Group’s liquidity position thus remains sound.

Net financial liabilities totaled €1,787 million as of March 31, 2013, compared with €1,483 million as of December 31, 2012.

Net Financial Liabilities
     
€ million Dec. 31, 2012 March 31, 2013
     
Non-current financial liabilities 2,167 2,200
Current financial liabilities 167 191
less    
Liabilities for accrued interest (54) (75)
Cash and cash equivalents (386) (353)
Near-cash assets (411) (176)
  1,483 1,787

Financing instruments off the statement of financial position

As of March 31, 2013, we had no material financing items that were not reported in the statement of financial position, such as factoring, asset-backed structures or sale-and-lease-back transactions.

Significant capital expenditure projects

Capital expenditures in the Performance Polymers segment, for example, were related to the construction of the new butyl rubber facility in Singapore for the Butyl Rubber business unit. As planned, the plant entered its commissioning phase in the first quarter of 2013 and is due to start commercial production in the second half of the year. Also in Singapore, the Performance Butadiene Rubbers business unit is currently building the world’s largest production facility for neodymium-based performance butadiene rubber (Nd-PBR) with an annual capacity of 140,000 tons. It is scheduled to start operating in the first half of 2015. In Changzhou, China, our Keltan Elastomers business unit is erecting the world’s largest production plant for EPDM rubber. This plant, which will utilize the innovative Keltan ACE technology, is due to start up in 2015. Fifty percent of production at the site in Geleen, Netherlands, has been converted to the Keltan ACE technology. This work was completed in the first quarter of 2013. Our High Performance Elastomers business unit is expanding production capacities for chloroprene rubber at the site in Dormagen, Germany. The High Performance Materials business unit is investing in a new world-scale plant for polyamide plastics at the site in Antwerp, Belgium. The facility will have an annual capacity of around 90,000 tons and is scheduled to be completed in 2014. The capacity of our glass fiber production operations, also based in Antwerp, is being expanded. In addition, a new plant for compounding high-tech plastics is being built in Porto Feliz, Brazil, with completion due later this year.

The Advanced Intermediates segment’s Advanced Industrial Intermediates business unit is expanding cresol production at the Leverkusen site. Completion is expected in mid-2013.

The Performance Chemicals segment’s Inorganic Pigments business unit is currently building a new high-tech plant for iron oxide red pigments in Ningbo, China. The plant will have an initial annual capacity of 25,000 tons. Production is scheduled to start in the first quarter of 2015. The Leather business unit completed construction of a production plant for leather chemicals with an annual capacity of up to 50,000 tons at the site in Changzhou, China. The facility, featuring the latest technology and eco-friendly processes, came on stream in April 2013. A further investment relates to the construction of a CO2 concentration unit at the site in Newcastle, South Africa, which is scheduled to start up in the second half of this year. The Rhein Chemie business unit is building a facility for rubber additives and release agents at the site in Lipetsk, Russia, where production is scheduled to start by the middle of this year. Furthermore, a manufacturing plant for vulcanization bladders is under construction in Porto Feliz, Brazil, and is due to start up later this year. The Ion Exchange Resins business unit is investing in a new production line for weakly acidic cation exchange resins and a state-of-the-art facility for food-grade filling and packaging at the Leverkusen site.

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